Texas court enjoins human tissue engineering company over trade secrets

In Human Regenerative Technologies, LLC v. Precision Allograft Solutions, LLC, Judge Jason Pulliam of the Western District of Texas recently granted a motion for preliminary injunction in favor of Human Regenerative Technologies (HRT) in a trade secrets case, where the motion for preliminary injunction was a “close call.”

HRT, owned by Skye Orthobiologics LLC, claimed that Precision Allograft Solutions, LLC, Alamo Biologics, LLC, and Dorotea Holding Co., LLC (collectively, “Alamo”), were using stolen trade secrets to produce their products. The technology central to this litigation concerns human tissue products – specifically, amniotic membrane tissues, which are derived from placenta samples and used for the treatment of chronic and acute wounds. HRT makes membrane, particulate, and flowable products for use in surgery and other procedures. Alamo makes similar products.

HRT identifies trade secrets

HRT identified specific knowledge regarding its processing methods as trade secrets. HRT claims two pieces of information as trade secret: (1) the tissue-to-liquid ratio used in HRT’s flowable products, called the “golden ratio,” and (2) the process for developing a thicker, more durable membrane in its products. In response, Alamo asserted that none of this information qualified as a trade secret. Alamo alleged that the golden ratio is both publicly disclosed in a patent and discoverable via reverse engineering, and the membrane thickness is in use by another company and can be determined by simple inspection of the product. Whether or not this information is considered to be trade secret will be determined later in the litigation.

In a case related to this action, a Central District of California court found that a former HRT employee shared confidential information with Alamo, in breach of his confidentiality agreements. The ex-employee now has a distribution company that distributes Alamo’s products. In this California litigation, the court found that the ex-employee shared certain documents with Alamo containing specific information about HRT’s processing methods.

In this action, HRT asked the court to enjoin Alamo from making or delivering products created using HRT’s alleged trade secrets, under both the Defend Trade Secrets Act (DTSA) and the Texas Uniform Trade Secrets Act (TUTSA). A preliminary injunction requires the following four factors weigh in favor of the party requesting the remedy: a substantial likelihood of success on the merits, a substantial threat of irreparable harm to the movant if the injunction is not granted, the threatened injury to the movant outweighs any harm that may result from the injunction to the non-movant, and the injunction will not undermine the public interest. The court found that these four factors were in favor of HRT and granted the preliminary injunction.

Determining the factors of the injunction

The propriety of the injunction hinges in part on whether the trade secret owner can demonstrate a substantial likelihood of success that the claimed knowledge qualifies as a trade secret and that it was misappropriated. For this first factor, HRT pointed to evidence from the California case, including proof that the HRT ex-employee shared documents with the targeted confidential information. Furthermore, HRT argued that if these processing methods were not trade secrets, and were widely known, Alamo would not have needed this information from HRT’s ex-employee. HRT pointed to the California court’s findings to support these additional TUTSA requirements. Even though the trade secret status of the claimed knowledge was not to be determined until later in the litigation, and was not guaranteed, the court concluded that this factor still favored a preliminary injunction.

As to the second factor, the court found HRT’s irreparable harm arguments persuasive – HRT pointed to lost profits, reputational harm, and damage to company value. The court did not agree with Alamo’s arguments that this action was untimely, especially as there had been an agreement in place, as part of the California case, that HRT would obtain a jury determination prior to seeking relief from Alamo.

For the third factor, the court determined that the balance of harms weighed in favor of HRT. Alamo’s main argument was that the injunction would shut down the ex-employee’s distribution company and remove Alamo’s products from market. The court noted that neither the ex-employee nor his distribution company were parties to this suit and thus impacts to them from this action were irrelevant. The court further stated that because Alamo did not have clean hands and the cost-benefit analysis favored the grant of an injunction, the injunction was proper. The court also required HRT to post a bond in the event Alamo was wrongfully enjoined, in the event that no trade secrets were found.

On the fourth factor, the court did not find an injunction to be contrary to the public good, as HRT’s products, identical to Alamo’s, would still be on the market.

Conclusion

This court’s ruling on preliminary injunctions outlines a scenario in which a preliminary injunction may be granted, even when likelihood of success on the merits is not guaranteed. However, if considering a preliminary injunction as a strategic move, a plaintiff must remember that the bond requirement can make this a costly strategy to pursue.

For any further questions and clarifications about preliminary injunctions, please contact the authors of this alert.